Working Paper Revision

Low Interest Rates and the Predictive Content of the Yield Curve

Abstract: Does the yield curve's ability to predict future output and recessions differ when interest rates and inflation are low, as in the current global environment? We explore the issue using historical data going back to the 19th century for the US. This paper is similar in spirit to Ramey and Zubairy (2018), who look at the government spending multiplier in times of low interest rates. If anything, the yield curve tends to predict output growth better in low interest rate environments, though this result is stronger for RGDP than for IP.

Keywords: low interest rates; policy; predictive content of the yield curve;

JEL Classification: E32; G01; N10;

https://doi.org/10.26509/frbc-wp-202024r

Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers

Publication Date: 2021-12-21

Number: 20-24R

Related Works

• Working Paper Revision (2021-12-21) : You are here.
• Working Paper Original (2020-08-06) : Low Interest Rates, Policy, and the Predictive Content of the Yield Curve